Lead Output in China to Extend Drop as Pollution Curbs Shut Battery Makers

By Bloomberg News -
Jun 16, 2011

Lead production in China, the
world’s largest, may extend a decline as inventories reach a
record and battery makers close plants in response to a
government crackdown on pollution.

“Companies along the industry chain, from refined
producers to recyclers and battery makers, have started to cut
output since last month,” said Chen Jianfang, vice president of
Chunxing Group’s recycled-lead production division, the largest
reuser of lead-acid batteries in the country.

Decreasing demand may cap a 42 percent advance in prices in
the past year on the London Metal Exchange and squeeze profits
at metal makers Henan Yuguang Gold & Lead Co. and Shenzhen
Zhongjin Lingnan Nonfemet Co. Battery producers, which represent
80 percent of consumption, shut along with recyclers after
hundreds were poisoned in Zhejiang and Guangdong provinces.

“Many smelters moved forward their maintenance and repair
plan to May and June given the tepid demand,” said Zhang Shu,
an analyst at data provider SMM Information & Technology Co. “I
expect the June number to be even lower than May.”

Production of refined lead dropped 13 percent last month
from April to 345,000 metric tons, the National Bureau of
Statistics said June 14. China has record commercial lead
inventories of 260,000 tons, according to SMM.

No Lead

Battery plants in Zhejiang, Guangdong, Sichuan and Henan
provinces suspended production since mid-May, Xu Hong, head of
the lead-acid battery branch at the China Electrical Equipment
Industry Association, said today. Zhejiang and Guangdong are the
two biggest producing regions, supplying 36 percent of total
output, according to SMM.

“They are not allowed to do anything that involves lead,”
Xu said. The Hong Kong-listed unit of Tianneng Group said
yesterday in a statement the company suspended operations at its
Wuhu plant pending a government inspection. Tianneng Group,
established in 1986, mainly produces power cells for e-bicycles.

The legal representative of Zhejiang Haijiu Battery Co. was
detained last month after more than 300 people were found to
have elevated levels of lead in their blood, the official Xinhua
News Agency reported. Separately, at least 600 people, including
103 children were found to suffer from lead poisoning in the
province, Xinhua said June 12.

Lead demand will climb 8 percent in China this year to 4.05
million tons, compared with growth of 11 percent last year, SMM
estimated before the crackdown started in May. China makes
200,000 tons to 300,000 tons more refined lead than it consumes
a year, Leon Westgate, an analyst at Standard Bank Plc, said in
a note on June 14.

Price Decline

“I don’t think the industry will return to normal
production in the near future,” Chunxing Group’s Chen said.

Lead for delivery in three months on the LME dropped as
much as 1.5 percent to $2,480 a ton today. Metal for immediate
delivery in Shanghai fell to about 15,875 yuan ($2,449) a ton in
mid-May, the lowest since July 2010. The metal last traded at
16,200 yuan a ton.

Lead output in China climbed to a record 448,000 tons in
November, according to the statistics bureau. Production was
fuelled by the auto industry as demand for vehicles surged 32
percent to the highest ever in 2010. Sales have slowed this year,
dropping for the first time in more than two years last month,
as the government phased out incentives and imposed purchase
restrictions to curb traffic.

“Nobody’s buying now,” said Hou Ming, a physical trader
at Shanghai Eagle-Metals Co., the largest lead and zinc trading
firm in eastern China. “Some estimate the volume these days is
only 20 percent of what it used to be.”

Stockpiles Climb

China’s stockpiles have gained after the government started
to levy a 10 percent export duty on refined lead from 2007 in an
attempt to conserve resources and control environmental
pollution. Exports have been unprofitable since 2009, according
to SMM’s Zhang.

“Although environmental checks have always been a topic,
Beijing obviously has become tougher this year,” said Leslie
Liang, chief representative of lead and zinc researcher CHR
Metals Ltd. in China. “The government understands that if it
doesn’t deal with the matter properly, the outcome on public
health would be disastrous, so we’d probably see the impact
spread.”